Definition: A maker of a note is the party or person who signs the notes, borrows the money, and promises to pay it back at a certain time. They are called the maker of the note because they physically made the contract.
The maker of a note essentially issues an IOU or a note to another person or company promising to repay the money with interest. The payee of the note or the lender agrees to lend the money to the maker and signs the note. This contract binds both parties.
What Does Maker of a Note Mean?
A promissory note is a promise to pay an amount at a given time. Usually an interest rate is paid as well. Everyone is familiar with this concept. It’s a basic loan from one company or person to another. Promissory notes or loans can have a set maturity where the payment date is set. Notes can also be payable on demand where payment must be made when the lender demands his money back.
Let’s take a look at an example. Assume Metal Guitar, Inc. issues a promissory note to Big Band, LLC for $1,000. Big Band, LLC agrees to the note and lenders Metal Guitar, Inc. $1,000. Metal Guitar, Inc. is the maker of the note since it is borrowing the money from Big Band, LLC. Metal Guitar, Inc. would record a $1,000 note payable on the liability section of its balance sheet. Big Band, LLC would record a $1,000 note receivable on the asset section of its balance sheet.